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New Faculty Interview - Yongheng Deng

Posted By David Walsh, Greystar, Tuesday, October 30, 2018

 


Professor Yongheng Deng joined the UW-Madison School of Business Faculty as a Professor of Real Estate and Urban Land Economics, and the John P. Morgridge Distinguished Chair in Business at the beginning of this year. Professor Deng most recently served as the Provost’s Chair Professor of Real Estate and Finance, Director of the Institute of Real Estate Studies, and Head of the Department of Real Estate at the National University of Singapore.

 

Professor Deng, you had a unique educational experience growing up in China. What happened?

I grew up in China during the “Cultural Revolution.” After one year of high school, then Chinese leader, Mao Tse-tung, closed all schools in China, and I was sent to the countryside to labor in the fields. It wasn’t until 11 years later that I returned to school after Deng Xiaoping reopened them. The hardship of my childhood and disruption in my education have motivated me to work harder and be appreciative of the opportunities I’ve been given. My parents are both educators, and I love being a professor.

 

How did you become interested in Real Estate?

Deng Xiaoping opened the door allowing Chinese students to study abroad, so I went to UC-Berkeley to attain my Ph.D. in economics. That’s where I met my first mentor, Professor Daniel McFadden, winner of the Nobel Prize in Economic Sciences in 2000, to study Econometrics. I was very fortunate to meet my major advisor and renowned public policy professor John Quigley. He advised me that though I might be at a disadvantage in pursuing econometrics as a theorist compared to my other classmates who were 12 years younger and trained as mathematicians. However, he pointed out that my personal experiences combined with the econometric skills learned from Professor McFadden could make me uniquely positioned to tackle social, economic issues my peers may not consider. Under Professor Quigley’s supervision, I started developing a competing risks hazard model to evaluate the prepayment and default risks in the United States mortgage market. My first job was with the US government in the Office of Federal Housing Enterprises Oversight (OFHEO) before I began teaching at USC.

 

Your teaching, research, and honors have taken you around the globe from Berkeley to Wharton,  Singapore, and China, only to name a few. What encouraged you to come to Wisconsin?

Following ten years tenure at USC, I taught for nine years at the National University of Singapore. They wanted to grow the real estate program, and I had maintained an interest in the Asian housing market, so I joined their team as the Director of the Institute for Real Estate Studies. I helped recruit talented staff and built one of the leading real estate programs in Asia. Now the program is well regarded, and I was ready to move closer to my family, who live in the United States. Wisconsin real estate program was the right choice because it’s a top program in the nation, I’m close with and respect the faculty here, and I was ready for new challenges.

 

What new goals do you plan to pursue here at UW?

Sustainable development has gained more attention from real estate developers and academic researchers around the world in recent years. Two years ago, I had an opportunity to co-chair the Singapore Chapter of the United Nation’s Sustainable Development Solutions Network (US SDSN). I am working now with my colleagues at the Wisconsin School of Business, and the Nelson Institute for Environmental Studies on campus to build up a team to make the University of Wisconsin-Madison an academic leader in this emerging field.

 

You have studied and written about the housing markets in Singapore and China. How do these housing markets differ from the US housing market?

Asian housing markets are unique in many perspectives. Singapore’s government is very active in hands-on managing their housing market, controlling almost 90% of the residential housing market. For example, their leader established a policy which encourages multi-ethnic households to live in the same neighborhood. When a family moves out, they must be replaced by a family of the similar ethnicity to maintain proportions representative of the nation’s ethnic composition within the neighborhood. It’s a way to use housing policy to address ethnic, social issues.

Regarding challenges of housing affordability, Singapore has focused on making housing affordable to the majority, in contrast with the US strategy of making certain housing targeted for the lowest earners. There you can purchase a four- or five-room condo with three to four years’ salary. The Chinese market, on the other hand, has exploded. In Beijing, it costs 15-years couple’s salary to purchase a 90 square meter condo, and families living in some tier-one cities are spending 96% of their monthly income on mortgage payments. Many people think a correction in the Chinese housing market is overdue. I studied this issue and found that it hasn’t happened yet because whereas the US housing bubble burst was largely triggered by over-leveraging, but in China, your first home requires a down payment of 40%. Your second home requires a down payment of 50% or more. As a result, a larger correction is needed to wipe out the equity.

Singapore has also developed a strategy using environmentally sustainable practices in building their urban and real estate space, partly because the city-country lacks natural resource. They’re doing a nice job, and that’s why they are becoming known as a Garden City.

 

What do we know about China’s housing demands for the elderly, particularly in the wake of the One Child Policy?

The dependency ratio is becoming distorted not only in China but also in other Asian economies, such as Japan, South Korea, and Singapore. With longer life expectancy, lower infant mortality, and delayed marriage, each married couple in China has four parents to take care of. Thus, the retirement savings for the elderly are being gambled in the housing market. Money is passed down to help the youngest married family members purchase a home on the assumption that it will appreciate and provide retirement income. As we all know, real estate is an illiquid investment, so China needs to develop a functional fixed income real estate asset market, such as REITs and MBSs, to meet these investment goals.

 

You have taught in many academic institutions, received numerous best paper awards across 20 years, and served in leadership positions of many organizations. Can you tell us about an accomplishment that has been particularly special to you?

About five years ago I was asked to chair the World Economic Forum’s Global Agenda Council for Real Estate. That was a unique platform that allowed global stake-holders to discuss challenges facing real estate such as sustainable development and how to finance affordable housing in different parts of the world. It helped me open my eyes to real estate challenges in other parts of the world. Last year, I helped the World Economic Forum to construct the Real Estate Industry Transformation Map which lists eight critical issues in the future real estate industry transformation.

 

What is one unique part about the University of Wisconsin or the city of Madison that you have enjoyed so far?

I love the farmers' market on Saturday mornings at the capitol, especially the fried cheese!

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